Spain's central bank has said that the recession continued in the first three months of the year, with the economy shrinking by 0.5%, its seventh quarterly contraction.

The bank said that the drop was somewhat milder than the 0.8% contraction in the final quarter of 2012. Compared with a year earlier, the economy was 2% smaller in the first quarter.

The bank blamed a continuing fall in consumer spending, which dropped 0.8% in the first quarter. The unemployment rate is 26%.

Spain's central bank has predicted the economy will contract 1.5% this year and only return to growth in late 2014.

The central bank's figures are an independent estimate. The official figures by the national statistics agency will be reported later this month.

The figures came as the country's Treasury successfully sold €3 billion in short-term debt with lower interest rates indicating growing investor confidence in the government's handling of the economy.

Spain's borrowing costs have also fallen over the past few months following a pledge by the European Central Bank to buy up unlimited amounts of debt if asked by a country in need of help.

The Treasury said it sold €2.16 billion in nine-month bills at an average interest rate of 0.79%, compared with 1% in the last such auction March 19. It also placed €855m in three-month bills at 0.12%, down from 0.29% last month.